Home sales down, prices up in county

Fewer foreclosures cited in MDA DataQuick report

Market analysts said it is possible the drop in foreclosures may only be temporary as banks seek to modify loans held by troubled borrowers and then finally take over the homes and try to resell them.

But another problem is looming that could upset any hoped-for housing recovery – higher interest rates.

In the past two weeks, Freddie Mac reported in its weekly surveys that the average rate for 30-year, fixed-rate mortgages jumped from 4.9 percent to 5.6 percent.

Dave McDonald, president of the local chapter of the California Mortgage Brokers Association, said he personally felt the increase, when the jumbo loan he sought for a home in Bonita rose from 4.8 percent to 6.375 percent.

When rates rose, refinancing “just about stopped,” he said, but recent days have seen a pullback in 10-year Treasury bill rates, the benchmark for mortgage rates.

Kelly Cunningham, chief economist at National University's Institute for Policy Research, said rising rates could spell trouble for housing.

“People have been drawn into the market with a combination of low prices and low interest rates,” Cunningham said. If interest rates rise, “That must make it more challenging for the housing market to recover and for home buyers to be able to afford it.”

Taking a longer view, Beacon Economics, a consulting firm based in Los Angeles and San Rafael, said yesterday that the housing slump has improved California's ability to retain and attract businesses.

“We have an increase in competitiveness as housing prices fall more than they do elsewhere,” said Beacon founding principal Jon Haveman.

Prices rose faster in California than elsewhere, he said, partly because production lagged demand and builders offered new, large homes at high prices.

“We have an abundance of housing in California and large 'McMansion' style housing,” he said. “We still have a dearth of low-income housing.”

When the economic recovery takes hold two or three years from now, affordability may suffer but not drop nearly as much as it did in the mid-2000s, Haveman said.

“We'll still have this problem, but you could think of us going to our normal lack of competitiveness, which is much better than at the peak,” Haveman said.

For the economy as a whole, Beacon's report said California's long-term picture is bright.

“Expect the teens to come in with a roar,” the firm said, referring to California in 2013 and beyond. The state's economy will be “robust” and, the firm concluded, “There are good things ahead for the Golden State.”

“I think California is in great shape – California has great fundamentals,” like a skilled work force and high-tech industries, Haveman said. “But we're still talking 2013 before things really start to turn around again for the state. We have a long row yet to hoe.”